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A New Twist in BCE Buyout Saga

Posted by Zach Lowe

The Am Law Daily's Julie Triedman has been following the never-ending saga of the $41 billion leveraged buyout of BCE Inc. like a hawk for several months.

In her post from last week, she noted that the deal was likely dead because of a closing clause that required that an auditing firm chosen by the buyers issue an opinion that BCE would be solvent post-buyout.

The buyers, a group of private equity funds lead by the Ontario Teachers Pension Plan, chose KPMG, and KPMG said on Nov. 26 that, in its opinion, BCE would be insolvent should the deal go through. That effectively ended any hope that the largest leveraged buyout in Canada's history would get done.

It was BCE's counsel at Sullivan & Cromwell that came up with the deal-killing closing clause. Given that fact, it would seem BCE has little basis for a lawsuit accusing the private equity buyers of backing out of the deal--a lawsuit in which BCE could in theory demand a $1 billion breakup fee.

But guess what? BCE filed just such a suit late Wednesday, Bloomberg reports. In the suit, filed in Quebec Superior Court, BCE argues that the buyers (a group that, in addition to the teachers' pension plan, includes Providence Equity Partners, Madison Dearborn Partners and Merrill Lynch Global Private Equity) backed out of the deal prematurely, ahead of the final deadline of 11:59 p.m. on Dec. 11. The suit says the buyers knew how shaky the economy and the deal's financing were early on, and therefore shouldn't be able to use those factors as excuses for backing out.

Lawyers for the private equity groups (those firms include Weil, Gotshal & Manges and Goodmans for Ontario Teachers and a pile of other firms for other buyers) responded by saying BCE is not entitled to any breakup fee.

It was only a few months ago that the buyers were so eager to close the deal--over the objections of BCE bondholders (who sued to block it)--that they took their case all the way to Canada's Supreme Court (see this Am Law Daily post for background).

The Canadian Supremes took the case, considered perhaps the most important business matter in the country's recent history and one that would determine whether Canada would follow U.S. standards and give shareholders (and not bondholders) the decisive vote in buyouts.

In June the Court sided with the buyout group but saved their written explanation for a later date. Well, that date is tomorrow, according to Bloomberg, and the court's reasoning will help determine how strong a precedent they set with their June ruling.